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The term "blockchain" can be traced back to an email sent by Satoshi Nakamoto in 2008 titled "Bitcoin P2P e-cash paper." He pointed out that blockchain is essentially a decentralized distributed ledger database, which is the underlying technology of Bitcoin. The blockchain itself is actually a series of data blocks generated using cryptographic methods, each containing information about transactions across the network over a period of time, used to verify the validity of information (anti-counterfeiting) and generate the next block. In simple terms, blockchain is a "decentralized" "value transfer network."

(1) Workflow of Blockchain How does blockchain perform accounting? As shown in Figure 1, suppose there is a transaction between A and B. A first initiates a request to transfer funds to B. A broadcasts the transaction request to all nodes in the network. The nodes collect the requests into a block, and each node competes to validate the transaction through computation. The first node to find the solution gains the right to create a new block, which indicates that the transaction has been verified as valid, and broadcasts the timestamp of the block record to the entire network for verification by other nodes. After all nodes confirm the accuracy of the accounting, the ledger is updated to form a new blockchain, and finally, the funds are transferred from A to B.

(2) Model Architecture of Blockchain The blockchain system is a bottom-up pyramid structure, consisting of a data layer, network layer, consensus layer, incentive layer, contract layer, and application layer (as shown in Figure 2).

The unique workflow and model architecture of blockchain technology determine that it has the following characteristics:

1. Open and Transparent The essence of the blockchain database system is a public accounting system, where everyone has a complete ledger. All data is recorded in this ledger, and every change in the amount of each account is recorded. Users can know their account balance and details, and the balances and changes of any account on the network are clear and transparent. All data is publicly accessible.

2. Distributed Ledger System Blockchain is a distributed ledger system, as shown in Figure 3. In this system, when transactions occur, there is a public ledger without a central organization, meaning all nodes are central. Each node owns this ledger and maintains it collectively as miners. Any node can use it as a trader. Continuing with the previous example, if A wants to transfer funds to B, A can send directly to B, and all other nodes will verify the authenticity and feasibility of the transaction, updating the ledger data in real-time. All nodes will have the latest ledger, allowing continuous transactions, and the blockchain gradually expands into a large-capacity ledger. Furthermore, if the contract layer of the blockchain can be programmed flexibly, it becomes a "distributed ledger computer."

3. Decentralization Blockchain transactions occur in a peer-to-peer manner, eliminating the need for a centralized model. For example, when shopping on Taobao, the buyer first transfers funds to Taobao, and the seller ships the goods only after seeing that the buyer has paid. Only after the buyer confirms receipt does Taobao transfer the funds to the seller. Here, Taobao acts as a third-party intermediary, holding the buyer's funds and profiting significantly. This is a typical example of a centralized organization. In our lives, centralization has become the norm, with centralized organizations seemingly pervasive in society, extracting maximum profit and significantly increasing transaction costs while reducing capital efficiency. The emergence of blockchain aims to eliminate such centralized systems, allowing direct transactions between parties, achieving efficient capital use through computer programs, reaching Pareto optimality. From another perspective, because blockchain is open, everyone has the right to know about each transaction, and anyone can view the source code of this ledger, which fosters trust in this decentralized system without concerns about conspiracies or scams.

The development of accounting reflects the progress of social and economic development; however, the current accounting model still has many shortcomings. Since each ledger owner is responsible for managing their own ledger, once a ledger is damaged or lost, data recovery becomes difficult. In multi-party transactions, inconsistencies often arise between ledgers, leading to complex reconciliation tasks. Throughout various stages of accounting development, there is a possibility of tampering and fraud. The emergence of blockchain, a distributed shared ledger system, offers a new choice, addressing long-standing bottlenecks in accounting.

The theory of information asymmetry, proposed by economists, refers to the differences in the level of information held by various market participants during the operation of a market economy, which affects market transaction behavior and operational efficiency, leading to market failure, specifically manifested as adverse selection and moral hazard.

In accounting, the theory of information asymmetry indicates that companies may use specific accounting methods to preferentially disclose information in financial statements to certain users of accounting information for specific purposes. Some information users may obtain more information than others, resulting in information asymmetry between accounting information providers and users. As information providers, corporate management also uses this accounting information. Therefore, to pursue their own interests, corporate managers may forge original vouchers, alter economic content to legitimize fraudulent economic activities, reimburse with false invoices, embellish financial statements, adjust earnings and surplus, and engage in varying degrees of accounting fraud.

Moreover, some accounting firms also participate in this, assisting companies in committing fraud when disclosing financial reports, leading to a gradual decline in the credibility of the accounting profession in recent years. These issues arise from moral hazards caused by information asymmetry, resulting in a crisis of trust. The immutable nature of blockchain maximizes the authenticity and integrity of accounting information.

(3) Redundant Costs in Financial Accounting Operations that Blockchain Needs to Solve

The operational costs of financial accounting are mainly reflected in the following aspects:

(1) Reconciliation Work. Since each company is responsible for its own ledger, inconsistencies often arise during transaction settlements between companies, necessitating reconciliation, which increases costs.

(2) Audit Work. In today's auditing work, auditors typically need to send bank confirmation letters and company confirmation letters to verify the bank account balances and the authenticity of transaction contracts or funds. These complex procedures not only waste time but also significantly increase audit costs.

(3) Agency Costs of Third-Party Intermediaries. Companies often cannot directly authorize transactions and require third-party institutions, similar to the earlier example of shopping on Taobao, leading to agency costs, which is a problem caused by centralization. The existence of centralization not only increases its own agency fees but also easily leads to "rent-seeking" behavior, where a few individuals seek to achieve their own interests.

An Application of Accounting in Blockchain

The essence of blockchain is a distributed ledger system. From the working principle of blockchain, it can be seen that in this database system, accounting is not controlled by a single person or a centralized entity but is jointly controlled by all parties involved in the transaction. Each party is a node, and all nodes have equal rights, with no distinction between headquarters and branches, forming a completely flat organizational structure. In this distributed accounting model, all transaction parties have consistent ledger data, so inconsistencies in ledger information between the two parties do not occur. Additionally, even if one party's ledger data is lost, there is no need to worry about data recovery; the emergence of blockchain alleviates the concerns of traditional accounting models.

(2) Avoiding Moral Hazard

From the first block to the latest block, blockchain stores all historical data, with each block recording the hash value of all transaction information from the previous block, forming a chain structure. Therefore, each transaction can be traced back through the structure of the blockchain, verified one by one. The working mechanism of blockchain technology also provides a timestamp function, with each transaction having a time record, and this time sequence is irreversible, making it technically more difficult to commit fraud such as tampering, erasing, or fabricating transactions. Moreover, if a node wants to change data, it must obtain the approval of at least 51% of the nodes. As the number of accounting entries increases, blockchain has become a large-capacity ledger system, making it very difficult to control 51% of the nodes, which requires extremely high costs. Additionally, under the distributed ledger system of blockchain, all transaction parties' data is consistent, thus not only avoiding the alteration of transaction information but also addressing information asymmetry, thereby mitigating moral hazard.

(3) Reducing Costs of Financial Accounting Operations

The decentralized nature of blockchain is reflected in the completely flat structure of the ledger database, where all nodes have the same management and usage rights, eliminating the need for a central organization. The essence of having no center means that all nodes are central, which significantly reduces the agency costs of third parties in the financial accounting process. Furthermore, since the ledger under blockchain technology cannot be arbitrarily altered, reconciliation costs, supervision costs, and audit costs are also reduced, improving capital efficiency, which is undoubtedly a significant breakthrough in the history of accounting development.

Five Strategies for "Blockchain + Accounting" Applications

Through various perspectives, it is evident that blockchain technology will indeed provide new ideas for accounting reform. However, many enterprises still only focus on blockchain at a superficial level and maintain a conservative attitude toward specific exploration and implementation. Therefore, this article analyzes the advantages, disadvantages, opportunities, and challenges of "Blockchain + Accounting" through a SWOT analysis (as shown in Figure 4) and proposes corresponding countermeasures and suggestions to accelerate the future development of "Blockchain + Accounting."

Accounting is a comprehensive, continuous, and systematic recording and reflection of the economic activities that occur or are completed by enterprises and institutions. Supervision involves auditing and inspecting the legality, compliance, and effectiveness of the accounted economic activities.

Similarly, we will analyze the economic model of PlatON from the perspective of accounting, conducting comprehensive, continuous, and systematic recording and reflection of the relevant economic activities within the system.

PlatON Economic Model

One of the core issues studied in economics is the rational allocation of scarce resources. As an open, free, and participatory distributed system, a well-designed economic model can ensure the rational allocation of public chain resources while maximizing the interests of participants, aligning the interests of all participants with the overall interests of the public chain, allowing them to contribute to the entire blockchain network while pursuing their own economic benefits, ensuring the long-term stable development of the network.

In PlatON's economic scheme, from an accounting perspective, the main economic activities involved include: initial issuance, additional issuance, rewards, penalties, transaction fees, miner fees, and other major economic activities. Each economic activity involves the transfer of Tokens (in the public chain, Tokens are the main unit of currency measurement).

Similarly, from the perspective of the accounting equation, in the PlatON network, no economic activity will alter the balance of the accounting equation. By using the accounting equation combined with the double-entry bookkeeping method, the various economic activities in PlatON can be intuitively reflected.

Enterprise Economic Activities:

Economic Activities on PlatON:

From the comparison of the above images, we can see that if the entire PlatON system is viewed as a large commercial company, its economic model dominates various economic activities. All entities participating in this system will experience changes in Tokens while interacting with the system, which corresponds to the occurrence of economic activities.

Accounting in PlatON#

In accounting, before recording, corresponding accounts need to be set up. The establishment of accounts needs to be defined in conjunction with accounting elements. In accounting, accounting elements are a simple classification of accounting objects, mainly including six accounting elements: assets, liabilities, owner's equity, income, expenses, and profit.

• Assets: Refers to resources that are expected to bring economic benefits to the enterprise, formed by past transactions or events, owned or controlled by the enterprise. In PlatON, assets mainly refer to the Tokens held by each entity.

• Liabilities: Refers to debts that can be measured in monetary terms and need to be settled with assets or labor. In PlatON, we define the Tokens to be issued as liabilities.

• Owner's Equity: Refers to the residual interest in the assets of the enterprise after deducting liabilities, or the claim of investors on the net assets of the enterprise.

• Income: Refers to the total inflow of economic benefits generated by the enterprise in its daily activities such as selling goods or providing services. In PlatON, the block rewards obtained by miner nodes from daily activities are part of the miner's income.

• Expenses: Refers to the outflow of economic benefits incurred by the enterprise in its daily economic activities such as selling products or providing services. In PlatON, the transaction fees incurred by the entity are considered expenses.

• Profit: Refers to the operating success achieved by the enterprise over a certain period. In PlatON, the staking rewards generated by validator nodes providing services are considered profits, and the rewards generated from user delegation are also profits.

A rule known to every accountant is the accounting equation:

Expenses + Assets = Liabilities + Owner's Equity + Income

Through the accounting elements, we can see that the economic activities in PlatON, analyzed from the basic theories of accounting, have astonishing similarities while also exhibiting slight differences. In conventional accounting practices, the economic entity usually refers to enterprises, while in PlatON, there are multiple economic entities (including enterprises), and each economic entity generates economic activities with one another.

To clearly record the economic activities of each entity in PlatON and track them, verify the correctness of the economic model, ensure system stability, data accuracy, and improve economic efficiency, we will set accounting subjects from different entities, introducing the principle of the accounting equation into the PlatON economic model.

Here, the basic functions of accounting—accounting and supervision—are flexibly utilized. The occurrence of any economic activity will not change the balance of the accounting equation, based on this principle, the entire economic model system of PlatON can be monitored and verified. By combining relevant accounting knowledge, a complete verification of the PlatON system can be achieved, further strengthening the security of the entire economic model.

Accounting Subjects in PlatON

Accounting subjects are accounts that classify and record the specific contents of accounting elements. They are the names assigned after classifying various assets, liabilities, and owner's equity. The main significance of their existence is:

• The establishment of accounting subjects provides conditions for comprehensive, systematic, and classified accounting of economic activities.

• Accounting subjects are an important basis for accounting.

• Accounting subjects are a means to strengthen management.

Now we will analyze the economic model of PlatON from the perspective of accounting subjects. First, it is necessary to define the corresponding accounting subjects so that the accounting functions can effectively reflect the continuity, systematic nature, and completeness of economic activities. Based on the characteristics of economic activities in the PlatON economic model and the requirements of accounting standards, the naming of accounting subjects in PlatON needs to meet the following conditions:

• It can independently explain one aspect of the accounting elements, such as whether it is an asset, expense, or reward.

• It can systematically and comprehensively reflect accounting elements, such as the changes in multiple Tokens involved in transfers satisfying the accounting equation.

• The defined accounting subjects should meet the needs of decision-making and management, such as providing data support for sister systems.

• Combining the characteristics of the system, unifying consistency and flexibility.

The accounting period is a continuous business operation process artificially divided into continuous time segments of equal length for accounting and reporting the financial status and operating results of the accounting entity. In PlatON, we will use a block as the minimum unit for ledger recording. Of course, when programming related reports, they can be prepared according to settlement cycles or certain block heights.

Accounting Recording Method Flowchart:

Before defining various accounting subjects, let's first understand the characteristics of accounting subjects.

General Classification Accounts: Also known as first-level accounts, these refer to accounting subjects that summarize and classify the specific contents of accounting elements and are the basis for general classification accounting.

Detailed Classification Accounts: Also known as detailed accounts, these refer to accounting subjects that provide more detailed classifications of the economic content reflected in first-level accounts. Depending on the level of detail provided by the indicators, detailed classification accounts can be further divided into second-level and third-level detailed accounts.

Note: In actual situations, the following accounting vouchers may involve many economic activities corresponding to more complex double-entry bookkeeping; here, only the simplest scenarios are listed.

The following table defines the accounting subjects.

Note:

In PlatON, accounting subjects are classified based on the content of economic activities, with the highest level of subjects being four levels and the lowest being first-level subjects. Each subject's definition is aimed at different economic activities in various scenarios within the PlatON economic model. Based on the defined accounting subjects, analyzing different economic activities becomes much easier.

In the following content, we will construct various scenarios that generate economic activities in PlatON, match the defined accounting subjects, and generate corresponding accounting vouchers. Based on the generated voucher data, we can accurately track the economic activities throughout PlatON, including the flow of Tokens caused by each economic activity.

At the same time, according to the accounting principle: "for every debit, there must be a credit, and debits must equal credits," we can effectively account for and verify the economic data of the entire PlatON, ensuring the system's correctness and continuity. If any anomalies that do not satisfy the accounting equation occur, the accounting vouchers can quickly locate the problem.

In PlatON, the incentive pool, as one of the participants in economic activities, has the following main economic activity scenarios:

• Block Rewards: Nodes receive corresponding rewards from the incentive pool after producing blocks.

• Staking Rewards: During the settlement cycle, all validators participate in the distribution of verification rewards, provided by the incentive pool.

• Penalty Funds: Tokens deducted from nodes for violating rules will enter the incentive pool.

The accounting subjects corresponding to the incentive pool contract are mainly:

Therefore, analyzing the economic activities generated by the incentive pool contract using double-entry bookkeeping would be represented in the following form.

Accounting Voucher Explanation:

• Block Rewards: Tokens flow from the incentive pool contract to the node reward address, with the balance increasing for the reward address and decreasing for the incentive pool contract address.

• Staking Rewards: Tokens flow from the incentive pool contract to the node reward address, with the balance increasing for the reward address and decreasing for the incentive pool contract address.

• Penalty Funds: Tokens flow from the staking contract to the incentive pool contract address, with the balance increasing for the incentive pool and decreasing for the staking contract address.

Through the above double-entry bookkeeping records of accounting vouchers, we can clearly see the inflow and outflow of Tokens held by the incentive pool, allowing for detailed tracking of each specific economic activity.

Note: The diagram does not record detailed node IDs and reward addresses; the actual records will bind the node IDs with addresses for more precise tracking of Token flows.

Staking Contract

In PlatON, the staking contract participates in all economic activities related to staking funds, with the main scenarios including:

• Staking / Unstaking: For newly staked nodes, the user's Tokens will be locked in the staking contract.

• Delegating / Redeeming Delegation: User delegation will lock Tokens in the staking contract.

The accounting subjects are mainly divided into:

Based on the above allocated subjects, we will analyze the main economic activities through accounting vouchers.

Staking or Unstaking

Explanation: In actual situations, staking and unstaking will generate many economic activities based on different scenarios and states, corresponding to more complex double-entry bookkeeping; here, only the simplest scenarios are listed.

Accounting Voucher Explanation:

• Staking (Balance): Tokens flow from the Da Xiong wallet address to the staking contract, with the balance increasing for the staking contract and decreasing for the Da Xiong wallet address.

• Unstaking (Balance): Tokens flow from the staking contract to the Da Xiong wallet address, with the balance increasing for the Da Xiong contract address and decreasing for the staking contract.

Note: The detailed explanation of using locked funds for staking is in the section where the locked fund contract is the main subject; here, it is assumed that the balance is used for staking to explain the economic activity relationship.

Locked Fund Contract

Scenario: Using locked funds for staking operations, the locked balance will be transferred to the staking contract.

In PlatON, the locked fund contract participates in all economic activities related to locking funds and using locked amounts, including:

• Locked Amount Staking / Unstaking

• User Locking Funds

• Locked Fund Release

The accounting subjects are mainly divided into:

Based on the above allocated subjects, we will analyze the main economic activities through accounting vouchers.

Locked Amount Staking / Unstaking

Accounting Voucher Explanation:

• Staking (Locked Funds): Tokens flow from the locked fund contract to the staking contract, with the balance increasing for the staking contract and decreasing for the locked fund contract.

• Unstaking (Locked Funds): Tokens flow from the staking contract to the locked fund contract, with the balance increasing for the locked fund contract and decreasing for the staking contract.

Da Xiong Meets Fat Tiger

Deployment successful, staking successful, Da Xiong smoothly becomes a node on the Alaya network. At this moment, he is in a good mood, humming a tune. Seeing that the weather is nice, Da Xiong decides to go out for a stroll, bouncing out the door. Coincidentally, he runs into his old friend Fat Tiger. Today, Fat Tiger looks particularly happy and does not immediately give Da Xiong a beating but enthusiastically approaches him, saying he wants to show Da Xiong a mysterious thing. Fat Tiger pulls out his phone, performs a series of operations, and clicks into an app—ATON wallet, proudly displaying his ATP balance in front of Da Xiong.

After some understanding, it turns out that Fat Tiger's ATP was obtained as a reward for participating in community activities, and because he was quite active, he received a lot of rewards (including liquidity + locked funds). Seeing Fat Tiger's Tokens still lying in his balance account, as a seasoned node, Da Xiong sees an opportunity. He excitedly tells Fat Tiger a few things:

• You can delegate ATP (liquidity, locked) to validator nodes to earn rewards.

• When choosing a node, select one with a higher reward ratio, preferably one with a 100% reward ratio.

• Rewards are distributed once per settlement cycle, and you can see your rewards at the corresponding node in about 3 hours.

• After the rewards are distributed, you can claim them on ATON, and the claimed rewards can be delegated again.

Fat Tiger, after hearing Da Xiong's tips, immediately operates on ATON. Filtering by reward ratio, he selects Da Xiong's node (Da Xiong's staking node reward ratio is 100%). Select node -> Delegate -> Input amount -> Adjust transaction fee -> Input password -> Send, Fat Tiger completes all operations in one go, and now he just has to wait for the rewards. After completing the operation, Fat Tiger is eager to check the rewards and happily heads home.

After a while, Fat Tiger opens ATON again and finds that he has already received rewards. At this point, he needs to perform the action to claim the rewards to transfer them to his address balance. Fat Tiger excitedly clicks to claim -> Claim all -> Adjust fee -> Input password -> Package and mine -> Arrive, looking at the increased balance, Fat Tiger excitedly calls Da Xiong to tell him.

From the scene described in the above story, various economic activities have occurred from the perspective of the PlatON economic model. The main economic activities are:

• Fat Tiger participates in community activities to obtain ATP - Transfer

• Fat Tiger delegates to Da Xiong's node - Delegation

• Fat Tiger receives rewards - Reward Distribution

• Fat Tiger claims delegated rewards - Claim Rewards

• Da Xiong's node accumulates delegated rewards - Block / Staking Rewards

• Fat Tiger's locked funds - Locking Funds

• Fat Tiger uses locked funds to delegate - Locked Delegation

Next, we will provide a detailed introduction to the corresponding subjects involved in the economic activities mentioned above, including: incentive pool contract, staking contract, Fat Tiger's wallet, and delegated incentive pool contract.

Staking Contract

In the above scenario, the staking contract participates in economic activities mainly including:

• Delegation / Redeeming Delegation: User delegation, Tokens will be locked in the staking contract.

The accounting subjects are mainly divided into:

Based on the above allocated subjects, we will analyze the main economic activities through accounting vouchers.

Balance Delegation or Redeeming Delegation

Accounting Voucher Explanation:

• Delegation (Balance): Tokens flow from Fat Tiger's wallet address to the staking contract, with the balance increasing for the staking contract and decreasing for Fat Tiger's wallet address.

• Redeeming Delegation (Balance): Tokens flow from the staking contract to Fat Tiger's wallet address, with the balance increasing for Fat Tiger's wallet address and decreasing for the staking contract.

Delegated Incentive Pool Contract

In the above scenario, the delegated incentive pool contract participates in economic activities mainly including:

• Block Delegation Rewards: Block rewards, nodes distribute part of the rewards proportionally to delegated users, Tokens temporarily reside in the delegated incentive pool contract.

• Staking Delegation Rewards: Staking rewards, nodes distribute part of the rewards proportionally to delegated users, Tokens temporarily reside in the delegated incentive pool contract.

• Claiming Delegated Rewards: Users claim delegated rewards.

The accounting subjects are mainly divided into:

Based on the above allocated subjects, we will analyze the main economic activities through accounting vouchers.

Block Rewards

Staking Rewards

Claiming Delegated Rewards

Accounting Voucher Explanation:

• Block Rewards: Tokens flow from the incentive pool contract to the delegated incentive pool contract, with the balance increasing for the delegated incentive pool contract and decreasing for the incentive pool contract.

• Staking Rewards: Tokens flow from the incentive pool contract to the delegated incentive pool contract, with the balance increasing for the delegated incentive pool contract and decreasing for the incentive pool contract.

• Claiming Delegated Rewards: Tokens flow from the delegated incentive pool contract to the user wallet, with the balance increasing for the user wallet address and decreasing for the delegated incentive pool contract.

Locked Fund Contract

In the above scenario, the delegated incentive pool contract participates in economic activities mainly including:

• User Locking Funds

• Locked Amount Delegation / Redeeming Delegation

• Locked Fund Release

The accounting subjects are mainly divided into:

Locked Amount Delegation / Redeeming Delegation

Locked Fund Release

Accounting Voucher Explanation:

• Delegation (Locked Funds): Tokens flow from the locked fund contract to the staking contract, with the balance increasing for the staking contract and decreasing for the locked fund contract.

• Redeeming Delegation (Locked Funds): Tokens flow from the staking contract to the locked fund contract, with the balance increasing for the locked fund contract and decreasing for the staking contract.

• User Locking Funds: Tokens flow from the user wallet address to the locked fund contract, with the balance increasing for the locked fund contract and decreasing for the user wallet address.

• Locked Fund Release: Tokens flow from the locked fund contract to the user wallet address, with the balance increasing for the user wallet address and decreasing for the locked fund contract.

Note: The locked amount here is set according to the scenario and should belong to the locked funds for Fat Tiger's wallet address.

Ordinary Address

In the above scenario, Fat Tiger, as an ordinary user, is involved in economic activity scenarios including:

• User Transfer

• Paying Transaction Fees

Note: The economic activities related to the user wallet address have already been included in the previously mentioned subjects; here, we approach it from the perspective of the user wallet address.

The accounting subjects are mainly divided into:

The main transaction-related scenarios have been described in other parts of the text; here, we analyze the core transfer and transaction fees. Based on the above allocated subjects, we will analyze the main economic activities through accounting vouchers.

Transfer

Fee Deduction

Accounting Voucher Explanation:

• Transfer: Tokens flow from User A's address to User B's address (A may be the same as B), with the balance increasing for User B's address and decreasing for User A's address.

• Fee Deduction: Tokens flow from the user wallet address to the node reward address, with the balance increasing for the node reward address and decreasing for the user wallet address.

Accounting Principles

According to the equation formula, at any time, the sum of the debit and credit balances of all economic activity entities equals the total issuance of PlatON, ensuring fairness, justice, openness, and transparency. Based on the recorded accounting vouchers, we can summarize the sum of the debit and credit balances of each entity, and the summarized balance must always equal the initial total issuance plus any additional issuance.

Thus, by combining relevant accounting knowledge, a complete verification of the PlatON system can be achieved, further strengthening the security of the entire economic model.

Blockchain is primarily an accounting revolution—from double-entry bookkeeping to multi-party bookkeeping.

Who says "double-entry bookkeeping is what I fear you will do, and I fear it will be hard to check"? Who said this? Whoever said this should go back to school and learn basic accounting.

The reason for double-entry bookkeeping is to record financial situations more truthfully and comprehensively.

In this way, for a company, if its money increases or decreases, or if other things increase or decrease, there are three situations:

The first situation is that the increase or decrease is earned or lost, formed by its operations.

The second situation is that the increase is borrowed from others or returned to him, or interest is received from lending money to others, or rent is received from renting out things; the decrease is that he lends to others or returns to others, or pays interest for borrowing money from others, or pays rent for renting things. This is formed by borrowing and lending.

The third situation is that the increase is an investment from others, someone has invested in this company, or he has recovered his investment from others, or he has invested in others and received dividends; the decrease is that he has invested in others, or someone has recovered their investment from him, or he has paid dividends to other investors. This is formed by investment.

Therefore, in the course of its operations, the actual changes in a company's assets correspond to changes in rights, either creditor rights or equity. Creditor rights are formed by borrowing and lending relationships, while equity is formed by investment relationships.

The changes in assets formed by operational activities, after accounting for income, costs, and expenses, ultimately also need to be accounted for in equity, because the profits or losses of the company are the rights and obligations of the investors, and shareholders distribute profits according to their equity ratio and bear losses.

Thus, double-entry bookkeeping exists.

On one hand, it records changes in assets; on the other hand, it records changes in rights. Moreover, these two changes are correlated.

Double-entry bookkeeping is to record truthfully.

For example:

1. Company X borrows 1 million yuan from Industrial and Commercial Bank (for 5 years). On one hand, the money increases by 1 million, and on the other hand, the debt also increases by 1 million, so it should be recorded separately in bank deposits and long-term loans as 1 million. Company X's double-entry bookkeeping should be recorded as follows:

Debit: Bank Deposits 100 Credit: Long-term Loans 100

2. Another company invests in Company X, not with money, but with a technology project. Company X values this technology at 10 million. This means that the company has gained an intangible asset worth 10 million, while also increasing its equity by 10 million. Company X's double-entry bookkeeping should be recorded as follows:

Debit: Intangible Assets 1000 Credit: Capital Stock 1000 (if it is a listed company, it will be recorded in capital stock; if not listed, it will be recorded in paid-in capital)

3. Company X sells products for 3.5 million, with a product cost of 3 million. At this point, the company's money increases, but the products decrease. Company X's double-entry bookkeeping should be recorded as follows:

Debit: Bank Deposits 350 Credit: Main Business Income 350

Debit: Main Business Cost 300 Credit: Finished Products 300

Double-entry bookkeeping is in one ledger; how you record this account, while blockchain uses a peer-to-peer method, with many people maintaining the ledger, forming a distributed ledger system. Therefore, blockchain does not overturn double-entry bookkeeping; they are fundamentally not on the same level.

The accounting vouchers in the blockchain ledger can simply be seen as symbols for recording and tracking purposes. Each account in the modern double-entry bookkeeping system will have a corresponding blockchain account. The blockchain account is equivalent to a Bitcoin wallet, which contains a unique identifier for the account, related transactions, current balance, and cryptographic keys for verification.

Blockchain accounts will form a hierarchy that centralizes accounting records at three levels: individual accounts at the bottom; total assets, liabilities, and equity in the middle; and the overall company at the top.

Since accounts payable and inventory purchases involve external obligations, "obligation tokens" will be used to record such matters. This token is a certificate that proves obligations and asset ownership, along with their amounts and timings, and once issued, it is irrevocable and undeniable.

The obligation token mechanism can facilitate the automatic confirmation of the total value of tokens against the supplier's accounts receivable balance, promoting the implementation of automatic confirmations (DAI and Vasarhelyi, 2016). Obligation tokens can also be embedded in smart contracts, which encode the relationship between both parties and can execute payments upon meeting certain conditions (e.g., when the due date arrives).

Other business rules, such as providing discounts for early payments, can also be easily encoded into smart contracts, allowing for the automatic execution of pre-specified terms based on future conditions and activities.

Once token transactions are submitted to the blockchain network, computers in the network will execute multiple programs to verify the transactions, including verifying:

1. Company ERP system records;

2. Transaction postings;

3. Asset transfers;

4. Correct amounts and accounts;

5. Validity of the posting party (such as the company's ERP system or AP staff).

Although the verification process will be automated by blockchain technology, it should be limited to certain parties, such as accountants, management, auditors, etc., thus the ledger in this scenario belongs to the permissioned blockchain category.

Additionally, each party will play a specific role in the verification process, and their actions and concerns may be addressed differently. For example, if an auditor suspects a transaction, the transaction may be paused for the accountant's confirmation, while the CFO can decide to cancel the transaction entirely.

These rules can also be enforced through smart contracts. Valid transactions will be grouped into blocks and added to the main chain, after which authorized users can view and study them. Due to the nature of blockchain, confirmed and uploaded transactions cannot be manipulated.

To protect the privacy of sensitive company data, transactions can be encrypted before being uploaded to the blockchain ledger, allowing only users with decryption keys to view the transaction contents.

Following the same procedure, companies will record accounting data generated in procurement, sales, and cash collection business processes into the blockchain ledger. When companies process payments, accounting tokens will transfer from cash accounts to accounts payable.

At the same time, suppliers will return obligation tokens to the company to prove the discharge of obligations. Similarly, companies can collect debt tokens when customers purchase on credit and settle those tokens upon receiving payment. As mentioned earlier, all processes are automated, and since the methodology is guaranteed by blockchain technology, it is practically impossible to forge or destroy them to conceal fraud.

As the degree of automation of accounting information in the modern business world continues to increase, most accounting standards should be embedded in the software and systems that implement and execute the recording processes (Krahel, 2012). Smart contracts may play a significant role in encoding accounting rules and automatically recording transactions that comply with certain accounting standards.

For example, after programming the rule "sales should be recorded after goods are shipped" into a smart contract, such programs can check the shipping date before inserting the sales record into the blockchain ledger and pause the transaction update until the goods are shipped.

Encoding accounting rules into smart contracts can effectively control the recording of accounting activities, thus providing automatic assurance for processes such as postings, classifications, and cutoffs.

Companies, auditors, and standard setters must collaborate in the design and implementation of smart contracts, as this aids in the execution, automation, and self-monitoring of such contracts. A library of templates for these smart contracts will be gradually developed, helping to reduce creation costs.

Additionally, independent certification bodies can guarantee their validity and integrity.

Implementing an Accounting Ecosystem

In a blockchain-based triple-entry information system, automated information verification, processing, storage, and reporting functions can collectively form a self-sufficient accounting ecosystem.

In such an ecosystem, smart contracts will operate as autonomous software agents on blockchain technology, used for verification, control, and fraud prevention. Many accounting processes can be automated by encoding business rules or protocols into smart contracts.

For example, by automatically executing smart contracts, invoices can be processed and recorded for payments, and employee performance can be monitored and dynamic wages paid through smart employment (Peters and Panayi, 2016). The automation of tax reporting in the form of smart contracts can provide continuous updates to government agencies. By planning tax rules into smart contracts, the tax system will become simpler with fewer disputes (Allison, 2015).

Smart contracts can also be combined with Internet of Things (IoT) technology, which can capture the actual conditions and activities of physical objects to automate the accounting process. For instance, if an inventory item is known to leave the company based on its geographical information transmitted via IoT, a smart contract can execute to publish the sales record to the blockchain ledger.

Moreover, as future devices will be equipped with sensors, smart chips, and network access (Dai and Vasarhelyi, 2016), they may be able to self-report any inventory damage, undelivered items, or delays. These reports can trigger smart contracts to timely adjust corresponding accounting measurements. In addition to automation, smart contracts can add intelligence to accounting processes by integrating big data and predictive analytics.

For example, smart contracts encoded with default or credit rating prediction models can monitor the default risk of debtors based on their financial status and purchasing behavior, adjusting bad debt estimates accordingly.

Ideally, blockchain-based financial information can be made publicly available to shareholders, creditors, business partners, government agencies, or other stakeholders in real-time (Yermack, 2017).

Each information user has unique interests and goals, leading to different accounting data needs; for instance, CFOs and auditors need full access to all accounting data, accounts payable clerks need to review accounts payable entries, while investors only use highly aggregated information.

Therefore, specialized access authorizations should be granted to each type of information user based on their roles and needs. As mentioned in the previous section, blockchain-based accounting information systems allow users to view different levels of aggregated data based on predetermined roles. This increase in transparency, combined with the verifiable nature of blockchain, has the potential to enhance shareholder trust by reducing opportunities for management earnings manipulation (Yermack, 2017).

As the recording and presentation processes shift from manual operations to progressive automation, the role of accountants is transitioning from collectors and aggregators to interpreters and analysts.

An important question to consider is the scope of participants in the blockchain-based accounting ecosystem, especially in the processes of transaction verification and smart contract creation and validation.

Blockchain-based accounting systems are considered permissioned blockchains, where only internal entities of the company (e.g., its ERP system or accountants) can submit transaction records to the blockchain ledger, and verification functions are limited to accountants, management, and auditors.

The design and execution of smart contracts may involve numerous participants, such as management, representatives of business partners, creditors, auditors, service providers (e.g., big data analytics companies), as long as they are committed to creating efficient smart contracts.

However, the verification of whether smart contracts comply with regulations and laws should be performed by relevant professionals, such as auditors, lawyers, and regulatory agencies.

Smart controls must rely on control processes that include certain requirements for changing the underlying code and provisions for dispute resolution (Yermack, 2017).

Since the mechanisms of blockchain technology ensure the integrity of published data, they will also be used to protect the code embedded in smart controls. By publishing (and possibly encrypting) the code of smart controls on the blockchain, managers and auditors can continuously verify these programs.

Continuous assurance based on blockchain involves discussions about the role of auditing in a self-regulating paradigm (Yermack, 2017).

While the role of auditors in verifying specific accuracy may diminish, their judgment, oversight, and insights will become increasingly important. The focus of auditing will shift from record tracking and verification to more complex analyses, such as system evaluations, risk assessments, audit predictions, and fraud detection.

Another important role for auditors will be the evaluation and review of the design, creation, and execution of smart controls. Auditors need to understand the code within smart controls and investigate the accuracy of program operations.

To qualify for these responsibilities, auditors should receive technical training and require auxiliary systems specifically designed for auditors to understand, operate, and analyze blockchain and related technologies (Tschakert, Kokina, Kozlowski, and Vasarhelyi, 2016).

Regarding the potential applicability of blockchain, the challenges of adopting and fully utilizing this technology in accounting and auditing cannot be overlooked.

Over the past few decades, many disruptive technologies, such as ERP and EDI (Electronic Data Interchange), have significantly improved company productivity and reduced operational costs.

However, the technical complexity of solutions, the requirement for substantial financial and time resources, the difficulty of extending technology to business partners, and the need for updates to business and processes may hinder the adoption of these technologies (Pan and Jang, 2008).

Since the challenges faced by blockchain are similar to those of ERP or EDI, lessons learned from the implementation of ERP and EDI can be referenced.

The acceptance process for ERP and EDI technologies has been extensively studied in the literature.

The Technology-Organization-Environment (TOE) framework (Tornatzky, Fleischer, and Chakrabarti, 1990) has been used to study factors that significantly influence the adoption of ERP or EDI (Schniederjans and Yadav, 2013).

This framework examines factors at the company level that drive or hinder technological innovation from three perspectives: technology, organization, and environment. The following sections provide insights into the challenges of adopting and implementing blockchain for accounting purposes, comparing them with ERP or EDI, including the three angles of the TOE framework, and also highlight research opportunities related to addressing or mitigating these challenges.

The technological world provides computing, the internet, and advanced analytical methods for business activities, but the essence of accounting measurement models remains the double-entry bookkeeping model from the late Middle Ages (Pacioli, 1514).

Moreover, the fundamental methods of auditing (Montgomery, 1919) have evolved very slowly over a century, at best limited to the use of technology.

It is concerning that modern accounting and auditing based on these outdated technologies will render processes redundant, inflexible, unable to withstand modern cyberattacks, and reliant on outdated rules.

Therefore, after considering various rules and accounting professionalism, this article proposes a blockchain-based accounting and assurance approach that will provide real-time, verifiable information disclosures and gradually automated assurances. However, the difficulties of developing and implementing this entirely different technology should not be underestimated.

The purpose of this article is to discuss how blockchain technology will impact the accounting and assurance industries and provide opinions. Our research still has many limitations, and we point out three important issues.

First, blockchain technology is emerging and rapidly evolving, and its applications in accounting and assurance may need to be expanded and reconsidered with the introduction of new algorithms and methods.

Second, this article only provides a general discussion of the role of blockchain in accounting and assurance environments, while the applications and challenges of blockchain in specific fields, such as government auditing, require further contemplation.

Third, concepts like triple-entry bookkeeping may merely be adaptations to the existing world, which may not be sufficient for use in a rapidly changing world.

Changes in the Paradigm of Evidence

Blockchain and other emerging technologies (such as the Internet of Things, continuous auditing and control monitoring mechanisms, process mining models, etc.) can significantly alter the current auditing paradigm, thereby promoting the development of a new generation of auditing paradigms (Dai and Vasarhelyi, 2016).

In the new paradigm, blockchain technology can serve as the foundation for storing and protecting all audit-related data, allowing auditors and other service providers to create smart contracts that run on the blockchain to execute effective controls and advanced analyses.

This structure can use smart contracts to automatically confirm the balance sheet equation. For example, if the balance in the company's account is set to the balance in the asset account minus the total balance in the liability and equity accounts, a smart contract can be created to monitor the company's account balance, issuing alerts when the balance does not equal zero.

Another benefit of the account hierarchy is that it allows data to be viewed at different levels. Different information users have varying requirements and restrictions for accounting data collection, so different data views should be granted based on user roles.

After a thousand years of development, accounting has reached a turning point: the triple-entry bookkeeping method. Blockchain technology is a system that enables this type of accounting method. Furthermore, this system creates three sets of entries: two sets are standard for double-entry bookkeeping, and the third set is provided by the issuer (the nodes in the blockchain system). The entries provided by the issuer are presented in the form of digital receipts for the transaction, along with the issuer's signature, creating a dominant record for the transaction, which is jointly stored by the entire transaction network. In simple terms, blockchain's triple (multi) entry bookkeeping retains the transaction debit and credit information of both parties and a third party (the entire network). In the original single ledger, both parties kept their own records in their ledgers, resulting in countless ledgers existing within the entire business network. When reconciliation or auditing is needed, third parties (audit firms), regulators, and inter-industry clearing associations must be involved, leading to high overall costs and low security, with risks easily arising. Blockchain core addresses several key issues of double-entry bookkeeping:

1. Reconciliation between single ledgers becomes a consensus across the entire network.

The reconciliation of different ledgers has transformed into a consensus algorithm mechanism, significantly reducing the enormous costs of security and interoperability in double-entry ledgers. The blockchain network also possesses scalability; although the performance of a single blockchain network may decrease with an increasing number of participants, current consortium chains can maintain performance loss at around 100 nodes, and larger ledger expansions can be achieved through trusted cross-chain implementations, especially for the financial industry, where current technology can support more multi-party collaborations.

2. The process of trading before settlement transforms into trading being settlement.

Traditional settlements between double-entry ledgers, especially in financial scenarios, are fundamentally unable to achieve instant settlements. Typically, business transactions occur over a period before centralized settlement, leading to significant settlement pressure. However, blockchain can achieve trading as settlement (with the fastest consensus mechanisms allowing block production within one second). In the blockchain system, direct peer-to-peer transfers can occur between different addresses, where what Address A gains is what Address B loses. Different account systems require third parties to change the accounts of both parties in a transaction, while in blockchain, transaction confirmations and distributed ledger updates are completed simultaneously, resulting in high settlement efficiency. The distributed ledger and confirmed transactions are publicly available and immutable across the entire network (under normal consensus conditions). Whether in UTXO mode or ACCOUNT mode, transactions naturally converge with settlements, fully automating the entire ledger processing. With the development of consensus technology, this significant bottleneck of transaction confirmation in blockchain has improved. Compared to traditional centralized settlement methods, the efficiency improvement of blockchain is more than an order of magnitude.

3. From data ledgers to programmable systems.

Before the emergence of Turing-complete smart contracts, Bitcoin, as the earliest implementation and prototype of blockchain, can be seen as a pure transaction and settlement network. The Bitcoin network and bank networks can be viewed as a simple multi-party bookkeeping model versus a double-entry bookkeeping model. With the development and in-depth application of smart contract technology, blockchain has gained powerful programmability, expanding its original simple transaction functions to implement more complex functions such as conditional payments, business logic, automatic execution scripts, and multi-party agreements that comply with legal relationships. The ledger has transformed from merely recording transaction data to being able to complete complex atomic-level transactions. For example, in complex transaction scenarios requiring double-entry bookkeeping, the business system needs to complete the transaction and then record the transaction result in the ledger system, where the ledger only records the transaction result without documenting the process. This intermediate link becomes a significant flaw in the system. In blockchain, the complex transaction process occurs within the ledger, where the ledger reaches consensus and witnesses every transaction and event to ensure the correctness of transactions, ultimately recording the transaction process. This effectively eliminates risks between systems.

The Prototype and Characteristics of Blockchain Finance

1. Generating full-scale digital assets through its own activities: Currently, the most typical examples include accounts receivable digital assets in supply chain finance, order digital assets, and user self-data in data banks.

2. Conducting financial activities without relying on financial intermediaries: Referring to the currently most popular DeFi projects, we can see that in the Crypto world, user-to-user transactions have already been realized (the vast majority of digital currencies), decentralized exchanges like Uniswap based on full network consensus where anyone can act as a market maker, on-chain collateralized stablecoin systems like MakerDao, and on-chain lending without centralized guarantees like AAVE. These solutions are also being realized in various ways in real industries.

Broadly speaking, financial infrastructure also includes legal environments, corporate governance, accounting standards, credit environments, anti-money laundering, and financial regulation, among which the most important are laws and regulations and corresponding supervision.

From a technical perspective, blockchain technology presents a new regulatory-friendly architecture. Traditional technological regulation and regulation are essentially two independent entities, where the regulator externally supervises the internal operations of the regulated entity, making it difficult to achieve good results in terms of efficiency and depth, and the costs are high.

Blockchain technology allows regulators and regulated entities to exist in the same business state and environment, with regulatory methods, corresponding laws and regulations, and effects entirely different from the original regulatory framework. Blockchain technology plays a role in regulation and risk control mainly relying on the following characteristics:

1. Full business data availability: First, for risk control and regulation, ledger information can be synchronized at any time, monitoring on-chain business activities as they occur, and since the data is immutable, this is very beneficial for determining sources and accountability.

2. Programmability of smart contracts: By embedding risk management measures and business logic into smart contracts, the characteristics of automatic execution of smart contracts turn risk control measures and regulatory measures into unavoidable programs, automating risk management and regulation.

In our previous projects, we communicated with regulatory agencies to design corresponding solutions to better meet regulatory units' needs for supervision within the blockchain architecture. One design we call: smart contract-based in-process regulatory system. The in-process regulatory system is a service component established between the blockchain middleware layer and the smart contract layer. First, the business contract embeds regulatory rules within it. When the business layer calls the business contract, the in-process regulatory system can monitor the data generated during the execution of the smart contract in real-time and analyze it. If any abnormal data is detected, it can be reported to the regulatory system and issue regulatory instructions to intervene in the executing business, such as pausing, running, or blacklisting, achieving real-time supervision of business processes. The entire regulatory process can be automated online, achieving efficiencies and depths that traditional methods cannot realize.

All documents (marriage certificates, judgments, contracts, currency notes) are essentially fact statements with legal significance. Even in the digital world, people still need to continue getting married, filing lawsuits, signing contracts, and making payments, and the authenticity and integrity of these fact proofs must continue to be guaranteed. Therefore, from both technical and legal perspectives, the certification of digital content is a pillar of our society and economy. Thus, blockchain, as a tool that can guarantee the authenticity and integrity of valuable information, will play a core role in the new digital age.

The distinct characteristics of digital transformation include the following points:

• Information is stored in the form of electrical pulses. This content is not embedded in the medium but can be deleted and overwritten.

• Information cannot be directly obtained through human senses. We need devices to read, interpret, and convert information so that our senses can use these devices (screens, printers, speakers).

• The concept of originals has disappeared: copies are no longer distinguished from originals.

The following table summarizes the major changes that also have significant legal consequences.

Blockchain greatly simplifies the preservation of accounting data. You can save copies of files, back them up, and ensure data authenticity through password checks.

For auditors, verifying the operation of the blockchain and the ownership and preservation methods of passwords will be very important. We must avoid password manipulation, prevent people from modifying data, and also avoid password tampering.

If changes are equipped with passwords, unauthorized personnel will find it more difficult to alter accounting trends and hide their traces. Finding data changes and restoring the original state will become simpler. Blockchain has a significant deterrent effect on changing accounting activities. In a well-organized system, any attempt to modify can be detected in a very short time. Blockchain also makes operations on data more secure, as improper changes to existing data can be easily identified due to incorrect procedures.

Contrary to what is believed, blockchain does not make modifying data impossible. If there are errors that must be corrected, this can be done. However, the password must be updated, and these operations must be accurately recorded.

The possibility of creating authentic copies also allows auditors to perform checks to determine data consistency outside of computer systems. With blockchain, conducting regular revisions becomes easier. Thanks to passwords, you can ensure that trends already checked have not changed.

Blockchain also facilitates modifications made by multiple entities. The certainty of data integrity allows reliance on controls that have already been executed. At the same time, there is no risk of tampering or processing misaligned data.

For tax authorities, blockchain is clearly an interesting system. Companies do not need to perform any other operations but send the password related to the current accounting status while ensuring compliance, and they will ensure that the data remains unchanged. Tax departments and auditors can easily operate without those checks designed to detect data changes.